On the last day of January, Volkswagen asked the United States District Court for the Eastern District of Virginia for an extension of time to respond to Acer 's 4G standard-essential patent (SEP) infringement complaint because the parties were discussing a settlement. Theoretically, this could have meant bilateral licensing talks, but Acer had filed its complaint because VW still hadn't upgraded a 2019 Avanci pool license from 3G to 4G. Only certain VW subsidiaries such as Audi and Porsche had a 4G license--but not the ones where most of the volume is. The VW group as a whole sells approximately 10 million vehicles annually.
We now know that VW has chosen a license to the 4G SEP portfolios of 49 different companies over countless bilateral deals: Avanci just announced that the Volkswagen Group has "expanded its existing relationship" with the patent pool so as to include 4G SEPs.
This makes a whole lot of sense. Volkswagen has now caught up with its German rivals BMW (Avanci's first announced licensee) and Daimler (which firstly settled with Nokia and then took an Avanci license in late 2021). Frankly, the previous state of affairs was an anachronism. Many of us remember when 3G was the latest and greatest in cellular telecommunications, so hot that carriers would bid huge amounts of money when spectrum was auctioned. Then the best is the enemy of the good. The best right now is, of course, 5G--for that standard, however, a pool rate has yet to be announced. 4G is now the lowest common denominator, given that some countries such as Germany, where Volkswagen is famously headquartered, have already switched off 3G.
Interestingly, when Volkswagen--through a supplier (Rolling Wireless according to media reports)--took a SEP license from Huawei last year, it was a 4G license.
The published Avanci rate for 3G is $9 per vehicle versus $15 per vehicle for 4G. Volkswagen's legal problem was that licensing is a binary question for each patent-product combination. You're licensed, or you're not licensed. If Audi--an almost-wholly-owned VW subsidiary--has a 4G license, it doesn't mean that its parent company's brand is licensed. If VW has a 3G Avanci license but implements the 4G, it simply infringes any 4G patents in the pool. But that's a thing of the past. A deal is a deal.
Not only Acer but also IP Bridge--another Avanci licensor--was enforcing 4G patents against Volkswagen. In the Acer case, the extended deadline for VW's response to the complaint ends tomorrow.
It shouldn't be hard to settle those cases now, but German business weekly Wirtschaftswoche quotes Volkswagen as saying that the Avanci license agreement "provides relief from pending litigation to an extent that is not clear-cut yet." VW also told Wirtschaftswoche that it has "reached a pragmatic solution that makes economic sense."
It is well known in the industry that LG is a Volkswagen supplier. The last major announcement by Avanci was that LG, one of the world's largest 4G SEP holders (if not the number one according to some statistics), joined the Avanci 4G pool as a licensor.
Just last week, the United States Court of Appeals for the Fifth Circuit affirmed the dismissal of automotive supplier Continental's U.S. antitrust case against Avanci and some of its licensors, particularly Nokia. In what represents a ringing endorsement of Avanci's business model, the panel held that granting a license to "third parties up the [supply] chain [...] is unnecessary to effectuate the purpose of the FRAND commitments and reduce patent hold-up." Volkswagen used to advocate so-called Licensing Negotiation Groups (1, 2, 3), which would raise serious issues under cartel law. It looks like Volkswagen didn't need to form an LNG in order to work things out with Avanci--neither for the original license in 2019 nor the 4G upgrade announced today.
Volkswagen did what was certainly best for Volkswagen under the circumstances. They chose a negotiated agreement over potentially protracted litigation. It is now actually in VW's interest that its competitors also take an Avanci license. One example of a major VW rival without such a license is Ford, which may already be under significant pressure in Germany. With every car maker that takes such a license, others will find it harder to convince the courts that they are willing licensees even if they decline to take a one-stop license for $15 per car to 49 SEP portfolios, including some very large ones (LG, Ericsson, Nokia, Qualcomm). Whether Avanci has 75% or 80% of all 4G SEPs, there can be no doubt that its share is huge.
If history repeats itself, Volkswagen will take an Avanci 5G license when 4G has been switched off in Germany. I don't expect it to take that long, however. Car makers are relatively new to the cellular SEP licensing business, but some are learning faster--and especially at a lower cost--than others.
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